Struggling with Onboarding? Relief is at Hand

A rarely-spoken about issue in financial markets is client onboarding – it’s all very well being able to win the clients’ business, but can you actually establish them in your system suitably quickly?

In April 2022, the UK’s Post-Trade Taskforce observed that “innovation in post-trade processes and client onboarding processes has at times lagged behind other parts of financial markets.”, adding, “As a result, processes are often manual and duplicative; and failures upstream can cause significant problems downstream.”

The report published by that taskforce prompted work by the Financial Markets Standards Board (FMSB) that has resulted in a new Standard of Good Practice from the body establishing best practice for the documentation and processes around client onboarding. The Standard was developed by a working group made up of representatives from FMSB member firms and previous participants from the Post-Trade Taskforce and seeks to harmonise the data and documents required from clients, as well as codifying elements of best practice in the interaction between clients and onboarding firms. This will, FMSB states, create greater efficiency.

It adds the Standard has been drafted to allow onboarding firms to continue to fully apply the UK’s Risk Based Approach to KYC and provides more granular, documentary guidance for the practical implementation of the UK Money Laundering Regulations. It provides core principles to provide best practices regarding how onboarding firms choose the required data points and source relevant evidence in the process of client onboarding.

A second part of the new Standard consists of annexes that provide documentation requirements, including a list of the data points identified by participating firms, universally acceptable sources, and commonly available documents which can populate and evidence these data points to the level of credibility required.

“This Standard is a big step forward in terms of harmonising and improving the onboarding process for both clients and firms,” says Siobhan Clarke, chair of FMSB’s Client Onboarding Working Group. “I would like to thank FMSB and all those who participated in the Working Group for their contributions to make this happen. FMSB provides a unique forum to debate, but crucially also agree and implement solutions to issues like onboarding, which have been frictions in the market for a long time.”

David Hudson, chair of the FMSB’s Post-Trade Committee, adds, “Inefficiency in client onboarding was rightly highlighted by the Bank of England Post-Trade Taskforce as an area where the industry needed to establish a common approach for the benefit of UK financial services as a whole. FMSB came forward to take on that role and this publication proves what the industry can achieve when working together, in areas where regulation may not be appropriate.

“I salute the Working Group for bringing together stakeholders with often differing views to agree this Standard, which offers a practical solution to a process long overdue for reform,” he continues. “All firms, including those who may not yet be FMSB Members, should be looking to implement this and show their clients they are at the forefront in terms of their onboarding processes.”

FMSB says it has consulted with relevant regulatory stakeholders and industry associations in developing the Standard and taken on board feedback from its Transparency Draft period, earlier in 2024. It stresses the new Standard is intended to provide practical guidance for firms onboarding new clients or reviewing existing clients in a manner that is compatible with, and works within the framework of, any applicable laws, regulations, and guidance for KYC and AML, including the Joint Money Laundering Steering Group Guidance and the UK Money Laundering Regulations and associated regimes.

It also stresses that nothing in the Standard is intended to prevent firms from continuing to take a risk-based approach in complying with the UK requirements. Its scope of application is any circumstances in which the UK Money Laundering Regulations have been triggered, regardless of the jurisdiction of the client.

“We welcome this work from the FMSB, noting the considerable effort that has been undertaken with multiple stakeholders to reach a common position,” says Andrew Bowe, director of the Financial Conduct Authority’s specialist directorate. “The UK’s high standards for customer due diligence must be maintained and continually improved and we look forward to seeing further updates on the application and effectiveness of the Standard.”